NBFC bank loans in April-October grew highest in 5 years

IN FY14, growth in bank loans to NBFCs between April and October stood almost on par with H1 FY19 at 13.2%

Outstanding bank loans to NBFCs stood at ₹5.62 trillion on 26 October—13.3% higher than ₹4.96 trillion of loans as on 30 March 2018. Graphic: Mint

Mumbai: Bank loans to non-banking financial companies (NBFCs) between April and October recorded the highest growth in five years, data from Reserve Bank of India (RBI) showed. This, at a time when NBFCs were finding it hard to raise money from the market.

According to the data on sectoral deployment of bank credit, outstanding bank loans to NBFCs stood at ₹5.62 trillion on 26 October. This is 13.3% higher than the ₹4.96 trillion of loans as on 30 March, 2018. In absolute terms, it is an increase of ₹66,200 crore.

Data for the previous two fiscals, FY18 and FY17, show that in the April-October period, loans to NBFCs had fallen 7.6% and 5.2%, respectively. However, in FY14, growth in bank credit to NBFCs between April and October stood almost on a par with FY19, at 13.2%.

Experts believe the reluctance of bond market investors has led a majority of NBFCs to queue up for bank loans. Karthik Srinivasan, group head, financial sector ratings, Icra, said the current rates for commercial papers for highly-rated NBFCs are closer to 8%, while for others, it is above 9%. “The marginal cost of funds-based lending rate (MCLR) of banks have not changed much in the last few months and, therefore, they have an advantage over the bond market for the time being, provided they want to take the risk.”

Srinivasan added that the growth in lending to NBFCs so far in FY19 is likely to have come from private sector banks, given that state-owned banks have turned risk-averse, besides the fact that lending restrictions have been put on 11 public sector lenders.

The October numbers show that expectation of a slowdown in growth following the IL&FS default also seems to have been misplaced. In fact, loans to NBFCs during the month grew by ₹15,900 crore from September, while it had shrunk by ₹24,700 crore in October 2017.

Ashutosh Khajuria, executive director and CFO, Federal Bank Ltd, said the lack of investor confidence in non-banks created an opportunity for banks, adding that it became more visible after the IL&FS fiasco in August as NBFCs started utilizing pre-sanctioned limits from banks. “The cost of resources went up in the last couple of months for reasons such as rise in oil prices, perception of a higher fiscal deficit and a volatile rupee.”

Khajuria said some banks saw this as an opportunity. “Banks with a credit-deposit (CD) ratio of 70-73% have now moved to 76-77% following a spate of loans to NBFCs.” CD ratio is the percentage of deposits a bank mobilizes as loans to customers.

Some senior bankers also allayed the fears of a liquidity crisis. Rajnish Kumar, chairman, State Bank of India, said last month that the liquidity situation of NBFCs has improved since October. At a systemic level, the liquidity deficit has shrunk over the last week and liquidity is now in surplus mode at ₹2,200 crore as on 3 December.

A chief executive officer of an NBFC, requesting anonymity, said that after the IL&FS default, a large sum of money moved from mutual funds to bank deposits. “Banks wanted to utilize these deposits and, therefore, either bought portfolios from NBFCs or gave loans to these companies.”